Rockney v. Blohorn

• Decision Date: 06 June 1989
• Docket Number: No. 88-5194,88-5194
• Citation: 877 F.2d 637
• Parties: , 11 Employee Benefits Ca 1001 Erling W. ROCKNEY, Kenneth M. Knopf, Glendon K. Olson and Marvin E. Diers, Appellants, v. Gerard M. BLOHORN, Oliver A. Kimberly, Jr. and Does 1 through 10, Inclusive, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 637

877 F.2d 637

57 USLW 2741, 11 Employee Benefits Ca 1001

Erling W. ROCKNEY, Kenneth M. Knopf, Glendon K. Olson and Marvin E. Diers, Appellants, v. Gerard M. BLOHORN, Oliver A. Kimberly, Jr. and Does 1

through 10, Inclusive, Appellees.

No. 88-5194.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 16, 1988.

Decided June 6, 1989.

Denis E. Grande, Minneapolis, Minn., for appellants.

Robert E. Woods, St. Paul, Minn., for appellees.

Before HEANEY and BEAM, Circuit Judges, and STUART ¹, Senior District Judge.

STUART, Senior District Judge.

This is an action by four retired executives of Pako Corporation (Pako) to collect from Gerald M. Blohorn and Oliver A. Kimberly, Jr., personally, benefits due them under Pako's unfunded "Top Hat" pension and deferred compensation agreements. Plaintiffs allege defendants are liable as control persons under the language of the agreements and under the definition of "Employer" contained in the Employee Retirement Income Security Act of 1974, 29 U.S.C. Sec. 1001 et seq. (ERISA). After discovery was completed, defendants filed motions for summary judgment which Judge Renner ² granted. Plaintiffs appealed.

According to appellants, the issues are:

1. Whether the district court erred in concluding that there was no dispute of material fact as to whether Blohorn exercised sufficient control over Pako to be individually liable as an "employer" under ERISA.

2. Whether the district court erred in holding that the express language of the relevant pension plans imposes no individual liability on Blohorn and Kimberly.

In reviewing an order granting summary judgment, we apply the same standard which governs the district court. Umpleby v. United States, 806 F.2d 812, 814 (8th Cir.1986). Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The Supreme Court has held that "Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2552-2553, 91 L.Ed.2d 265 (1986).

STATEMENT OF FACTS

[Viewed most favorably to appellants.]

On May 24, 1977, Pako's Board of Directors adopted Plan No. 1, a nonfunded pension plan which included the following language:

8.3 Acquisition of Employer. Notwithstanding any future sale of a substantial amount of the shares of the Employer or the sale of substantially all the assets of the Employer or any merger or other reorganization, this plan shall continue to be binding upon the Employer, any successor in interest to the employer In October, 1980 Pako entered into a Merger Agreement with Delblo Enterprises (Minnesota), Inc. (Delblo-Mn). As a result of the merger, Pako retained its name, but it was no longer a publicly held corporation. However, it is, in its new form, obligated to fulfill the contractual obligations of old Pako. Article V, paragraph 5.01 of the Merger Agreement. The Merger Agreement was executed on behalf of Delblo-Mn by defendant Gerard Blohorn as president. Andre Blohorn, Gerard Blohorn's father, through a wholly owned corporation (Delblo Enterprises, Inc.) and its wholly owned subsidiaries was the ultimate owner of Pako following the merger.

and all persons in control of the Employer or any successor, and no transaction or series of transactions shall have the effect of reducing or cancelling the accrued rights and benefits of present participants or the prospective rights and benefits of present participants under this plan unless consented to in writing by affected participants. (emphasis added)

In December 1980, Blohorn and Kimberly became members of Pako's Board of Directors. Blohorn was elected chairman of the board and became chief executive officer when Robert L. Galloway, Pako's president left at the end of 1982. In December 1985 Thomas J. Nicoski was named president and chief executive officer of Pako and has continued to serve in that capacity. The day-to-day operating decisions are made by the president.

On June 3, 1981 Pako's Board of Directors, including Blohorn and Kimberly, voted unanimously in favor of the adoption of Plan 2, a deferred compensation plan. Plaintiffs, Rockney and Diers were entitled to benefits under Plan 2. This plan was also binding on "all persons in control of the Corporation or any successor thereto."

During the 1980 fiscal year, Pako sales totaled 87 million dollars and it employed 1723 persons. After the merger, more than 20 million dollars of Pako's assets were sold and the number of employees were reduced to 350. In early 1986 financial conditions worsened, salaries were cut or frozen and the company stopped paying bills on a regular basis. In March and April 1986 Pako notified plaintiffs that the payments called for under Plans 1 and 2 would be suspended. The decision was made by Pako's operating management. Blohorn and Kimberly were not informed of that decision until later on.

In March 1987 Pako filed for protection under Chapter 11 of Title II of the U.S. Bankruptcy Code. Under Pako Corporation's Fifth Plan of Reorganization, the claims of the plaintiffs under Plans 1 and 2 as nonpriority unsecured claims are to be paid in accordance with their terms. Plaintiffs have received, without interruption, monthly benefits under Pako's fully-funded qualified pension plan that is not involved in this lawsuit. This action was filed June 13, 1986.

Oliver A. Kimberly, Jr.

There is no evidence in the record to support a finding that Kimberly was a "control person" either under the ERISA definition of employer or the language in the plans. Plaintiffs did not discuss Kimberly's role in Pako in the written briefs or oral argument. As there is no genuine issue of material fact on this critical issue, Kimberly is entitled to judgment as a matter of law. The trial court's order granting Kimberly's Motion for Summary Judgment and dismissing the action against him is affirmed.

The trial court's order granting Blohorn's Motion for Summary Judgment requires closer analysis.

PERSONAL LIABILITY OF CORPORATE OFFICERS UNDER ERISA

Plans 1 and 2 are covered by ERISA 29 U.S.C. Sec. 1003. However, as non-funded "Top Hat" plans "maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees," they need not conform to the requirements for participation, vesting, funding and fiduciary responsibility.

ERISA Secs. 201(2), 301(a)(3) and 401(a), 29 U.S.C. Secs. 1051(2), 1081 and 1101 (1985). An employer may be sued by participants in these plans to redress violations of ERISA or to enforce the terms of the plans. See 29 U.S.C. Sec. 1132(a). Appellant-participants contend that the appellees come within the meaning of "employer" under ERISA and are thus individually liable to them for unpaid benefits.

ERISA defines "employer" as "any person acting directly as an employer, or indirectly in the interest of the employer, in relation to an employee benefit plan * * *." 29 U.S.C. Sec. 1002(5).

"Person" means "an individual, partnership, joint venture, corporation, mutual company, joint-stock company, trust, estate, unincorporated organization, association, or employee organization." 29 U.S.C. Sec. 1002(9).

We must first decide the standard upon which liability of corporate officers is to be based under ERISA. This is a case of first impression in the Eighth Circuit. However, the issue has been considered by other courts. Three lines of cases have developed.

The first line of cases is lead by Solomon v. Klein, 770 F.2d 352, 354 (3rd Cir.1985). Chief Judge Aldisert stated the issue to be: "whether under concepts of statutory construction of ERISA we should conclude that Congress intended that corporate officers or large stockholders could be held liable for a corporation's violation of ERISA." The Third Circuit stated: "There is no indication that Congress intended to expose corporate officers to liability for their employers' violation of ERISA; in fact, the exclusion of corporate officers from the extensive enumeration of persons points in the opposite direction." The Third Circuit held that corporate officers cannot be held personally liable under ERISA where there is no basis for piercing the corporate veil. The D.C. Circuit has recently taken the same position in International Brotherhood of Painters and Allied Trades Union v. Kracher, 856 F.2d 1546 (D.C.Cir.1988). Several other courts have reached the same conclusion. ³

United States District Courts in Massachusetts and Illinois ⁴ have analogized ERISA to the Fair Labor Standards Act (FLSA) because of the similarity in the definitions of "employer" and reasoned that "Congress may properly be presumed to have recognized that courts were likely to interpret the ERISA definition of ' "employer" ' as expansively as they had interpreted the nearly identical language of FLSA". Trustees of Amalgamated Insurance Fund v. Danin, 648 F.Supp. 1142, 1146 (D.Mass.1986); 8 FCB 1588, 1590. These cases held that corporate officers or stockholders could be personally liable under ERISA even though it would be inappropriate to pierce the corporate veil.

In Laborers Pension Fund v. Bakke Construction Company, Inc., (N.D.Ill. Nov. 10, 1987) (not reported in F.Supp.) 1987 WL 19818, Chief Judge Grady, took a third "plain language" approach, saying:

We are asked to select between two recognized methods of statutory construction--plaintiffs' invitation to reason by analogy, or defendant's argument that expressio...